B of A High Yield Broad Market Index up 0.63%, year-to-date gain increases to 22.31%

By Paul Deckelman

New York, Oct.14 - The Banc of America High Yield Broad Market Index rose 0.63% in the week ended Thursday Oct. 9, its eighth consecutive weekly gain, bringing its cumulative 2003 return to its highest point for the year so far at 22.31%.

Banc of America Securities did not officially publish the index in the latest week due to the abbreviated market schedule ahead of the Columbus Day holiday break, but did compile the relevant data.

In the previous week, ended Oct. 2, the index rose 0.49%, for a year-to-date return of 21.54%.

In the latest week, the index's spread over Treasuries tightened considerably to 569 basis points, its low for the year so far, from 603 bps the previous week, mostly due to the rise in Treasury yields following better-than-expected September new-jobs data. The junk bond index's yield-to-worst meanwhile tightened to 8.65%, also the year's low, from 8.76% the week before.

B of A's High Yield Large Cap Index also continued to push upward in the latest week, with a return of 0.81%, versus the previous week's 0.46%. The year-to-date return fattened in the latest week to its peak level for the year, 25.13%, from 24.13% the previous week. In the latest week, the spread over Treasuries was 532 basis points, tightening sharply to a new year-to-date low from 569 bps previously as Treasuries widened out, while the yield-to-worst fell to a year's-low 8.41%, versus the previous week's 8.54%.

In the latest week, the more inclusive High Yield Broad Market Index tracked 1,590 issues of $100 million or more, having a total market value of nearly $477 billion, while the High Yield Large Cap Index, representing the most liquid portion of the high yield world, tracked 548 issues of $300 million or more; updated figures on its total market value in the latest week were unavailable, although in the previous week, the Large Cap Index issues had an aggregate value of more than $285 billion. B of A sees both as reliable proxies for the more than $700 billion high yield universe.

As has been the case for most of the year, the high yield indexes have continued to rise in line with increases in market liquidity, as measured by the flow of money into high yield mutual funds, which are considered a reliable barometer of overall market liquidity trends. In the latest week, the funds saw a $68 million inflow, their third straight weekly gain and their twenty-fifth gain in the 40 weeks since the beginning of the year, according to a Prospect News analysis of the weekly funds flow data compiled by AMG Data Services.

On a credit basis, the lowest of the three credit tiers into which B of A divides its index - issues rated B- and below, accounting for 35.75% of the index - had the strongest return at 0.90%, followed by the middle credit tier (those issues rated BB-, B+ and B, making up 49.01% of the index) with an 0.62% gain. The highest tier, representing credits rated BB and BB+ and comprising 15.25% of the index, had the lowest return, of 0.03% on the week. That breaks a streak that saw the upper credit tier with the best return in each of the previous four weeks, followed by the lower tier and then the middle tier, in that order, in each of the last three weeks.

Continuing a recent trend of broad-based strength, 24 of the 27 industry sectors into which Banc of America Securities divides its high yield universe were in positive territory in the latest week.

The best performing sector in the latest week was the steel sector, which went from worst-to-first with a 1.97% gain after three consecutive weeks at the bottom of the slag heap (the sector had lost 2.63% in the week ended Oct. 2, on top of losses of 2.81% in the week ended Sept. 25 and 0.44% in the week ended Sept. 18 - all index-worsts - on the sharp fall in the bonds of AK Steel Corp. after the Middletown, Ohio-based steelmaker's mid-September announcement of the abrupt resignations of chairman and CEO Richard Wardrop and president John Hritz, and then AK's Oct. 1 warning that it would likely post a third-quarter loss of between 82 and 86 cents per share, far wider than Wall Street had been expecting.) AK was also the apparent catalyst for the latest week's turnaround in the sector, the company's bonds having risen after AK said that it had re-started talks on outstanding labor issues with the United Steel Workers of America, after months of a deep-freeze in relations between the union and the company under the previous senior management.

In the previous week, the non-ferrous metals and mining sector had held the top spot, with a 1.22% return.

The second-best performer in the most recent week was utilities, up 1.64%, aided by gains in Williams Cos. paper after the pipeline and energy company announced tender offers for $1.6 billion of its outstanding debt (utilities had also been the Number-Two performer the previous week, with a 1.18% return).

North American cable (up 1.47%), technology (0.95% better) and domestic wireline telecommunications operators (a gain of 0.92%) rounded out the Top Five list of best-performing sectors in the latest week; in the previous week, domestic cable and technology had been among the most feeble finishers, with a 0.17% loss and a paltry 0.08% gain, respectively.

On the downside, satellite services lost 0.15% to take over as the worst finisher from steel, which, as already noted, had been the cellar dweller for the previous three weeks but which turned around to be the top performer this past week.

Gaming credits were down 0.10% in the latest week, and non-ferrous metals and mining lost 0.03% (the mining sector, as already noted, had been the top-ranked performer in the week ended Oct. 2).

No other industry sectors finished in the red in the most recent week. Lodging (up 0.09%) and paper and packaging (up 0.12%) merely posted returns smaller than those of all of the other positive sectors, to round out the Bottom Five list of the weakest performing industry groups in the latest week.

On a year-to-date basis, international wireline telecom's cumulative gain fattened to 69.30% from 68.42% the week before, while international wireless telecom hung in there in second place with a 64.84% total return, up from 63.54% previously.

Despite their first-place finish this past week, the steelmakers-still reeling from having been by far and away the worst-performing individual sector for each of the previous three weeks - remained the only one of the 27 industry sectors in the red for the year-to-date, although its cumulative loss narrowed considerably to 2.40% from 4.28% the previous week.

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